Fed Economist: 2020 Economic Growth Predicted to Slow but Remain Positive

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Federal Reserve Bank of Dallas assistant vice president and senior economist Keith R. Phillips discusses how job growth has gone down since 2015.

Kathryn Boyd-Batstone / Rivard Report

Keith Phillips, the assistant vice president of the Federal Reserve Bank's San Antonio branch, says that the national economy is slowing but remains above trend.

A Federal Reserve Bank of Dallas economist on Wednesday put the probability of a recession at 95 percent, but predicted that any economic downturn won’t occur until late 2020 or 2021.

Keith Phillips, the assistant vice president of the Federal Reserve Bank’s San Antonio branch, presented his 2020 economic forecast to a packed house of San Antonio business professionals at a luncheon, saying that the national economy is slowing but remains above trend.

He expects the Texas economy will continue to outperform the national economy, with San Antonio remaining strong and with low volatility. The economist said that the biggest risks to this positive forecast would be a sharp decline in oil prices, a trade war escalation, or a national recession.

Texas is experiencing its lowest unemployment rate on record since 1976, and this is expected to remain low. The state is expected to end 2019 with 2.3 percent job growth, which likely will weaken to 1.5 percent to 2 percent in 2020, Phillips said. National job growth has slowed in manufacturing, construction, and mining, but overall growth remains positive.

Phillips, who has been the state’s most accurate forecaster on job growth in the Western Blue Chip Economic Forecast for over 15 years, said that job growth in San Antonio remains good. It’s predicted to increase 1.6 percent over 2018 by the end of 2019 and slow to 1 percent growth in 2020, but he said that this isn’t necessarily bad. San Antonio doesn’t usually see big swings in these rates – negative or positive – because the area’s economy is so stable. The local unemployment rate remains below national and state averages. 

“From our perspective, the San Antonio economy is doing great,” said J. Bruce Bugg Jr., chairman of The Bank of San Antonio, which sponsored Wednesday’s event.

Texas typically performs better than national economic averages due to the state’s low cost of living and good business environment, and indicators have been largely positive so far this year. In 2019, major industries have seen broad-based growth across Texas, except in oil and gas and professional business services. San Antonio’s health care sector has seen strong growth, and statewide homebuilding indicators suggest moderate growth. The Texas services and manufacturing sectors also show continued positive growth, but it has been at a slightly slower rate than last year. 

Although Texas energy activity has weakened and will likely not add further to job growth this year, Phillips doesn’t believe it will be a big drag on the state’s economy. Whether Texas goes into recession depends heavily on oil prices, which are expected to decrease slightly in 2020 but generally remain stable, according to the U.S. Energy Information Administration.

Phillips bases his national forecasts primarily on yield curve trends.

“Every U.S. recession over the past 60 years has been preceded by a yield curve inversion,” said Phillips. “The yield curve for September 2019 looks similar to the way it looked just before the last big recession.”

However, he said this negative outcome isn’t guaranteed since economic indicators are heavily influenced by perception of how well the economy is performing and uncertainty surrounding future performance. This means if trade negotiations with China and other major economies work out, then a path that appears ominous could change for the better.

Whether or not these trade disputes and other foreign relations issues are resolved could have a significant impact on San Antonio and the statewide economy. Texas is the No. 1 exporting state in the nation, and while local exports have generally been strong, they have been slowing.

About 6 percent of Texas exports go to China, and these exports are down 60 percent since last year. Past trends indicate that President Donald Trump’s administration will work to settle these disputes soon, as incumbent presidents typically try to stimulate the economy during election years, but Phillips suggested that anything is possible.

“The key word is uncertainty – right now, we don’t know what to expect,” he said.

Phillips said that it’s possible border and immigration issues have affected San Antonio’s economy. The area’s leisure and hospitality sector saw an unusual plunge in 2019’s second quarter, a time when the sector typically sees a bump from Easter visitors and shoppers. Long lines at the Texas-Mexico border could have prevented Mexican nationals from traveling to San Antonio for their usual holiday trips, Phillips noted.  

Phillips ended his overview on an encouraging note, saying that even if the U.S. goes into a recession, the impact on the nation’s consumers likely will be milder than the last recession because households are in better financial shape. While consumer debt has risen, it hasn’t risen as much as income.

 

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